A Happy New Year?

Due to our magazine production cycle, these four economic
experts were originally interviewed in September 2003 for this
article. In order to provide you with their latest predictions, we
talked to them again in November. Following their original
statements are their follow-up comments.

Ken Goldstein, Economist,
the Conference Board Inc.
"At the midpoint of 2003, we finally saw the transition from
consumption alone to consumption plus investment. Next year,
we'll see a continuation, a pickup in investment, along with a
continuation of reasonably strong consumer spending. Some inventory
rebuilding will be added to the mix as well, not at the beginning
of the year, but perhaps in the first half of the year.

"The number most people are most concerned about is jobs.
As a whole, we're probably talking in the range of about a
million new jobs for 2004-which is pretty damn good news
considering where we've been. The problem is, what happens once
you get beyond 2004 and into 2005? But at this stage of the game,
people will take a million new jobs even though it doesn't
begin to make up for the 2.8 million jobs we've lost. Of
course, this is largely independent of what may or may not develop
[in the Middle East]. Nobody really knows."

"The two questions people had this time a year ago were
'Where are jobs gonna go and where is investment gonna go?'
I think the only difference here is that it seems to be clear that
investment has started to recover and that means there's only
one question left: 'When are jobs going to start to come
back?'

"The Federal Reserve is not going to raise interest
rates until it's clear that we not only have an economic
recovery but we've got a labor market in recovery. And if we
don't have a labor market in recovery we're just not going
to see higher short-term interest rates out of the Fed.

"I think we're probably not going to suffer a
let-down in consumption at this stage of the game and it looks like
investing is going to continue at pace. So the last big question is
[not] whether the labor market [will] recover, but when? I
don't think we're more than a few months, at the most, from
when we can start talking about not when but that it's already
starting. So I think that's one of the big differences between
now and a year ago."

Hans Timmer, manager of
global trends, The World Bank Group
"We expect a moderate recovery in what we call the rich
countries, OECD [Organization for Economic Co-Operation and
Development] countries [such as Germany, France, Japan, the United
Kingdom and the United States]. The signs are already there in the
United States and Japan, but, as I said, it's moderate. On
average, 2.5 percent [GDP] growth for the OECD economy is still
significantly below what they achieved before the downturn in 2000,
and it will not be enough for a sharp reduction in
unemployment.

"The big worry we have with the OECD economy is that
macroeconomic stimulus has run its course, so if there are new
shocks to the system, there's not a lot of leeway for
governments to stimulate the economy."

(Hans Timmer couldn't be reached for our follow-up
interview. But co-worker Mick Riordan, senior economist for The
World Bank, agreed to weigh in.)

"Since we published our forecast in September of this
year, there have been a number of growth surprises within the
industrial countries. The first is the U.S., of course, with the
7.2-percent third-quarter number [GDP growth]. It's nicely
balanced, although the surge in consumption is probably
unsustainable, but may come in turn with investment spending. At
the same time, we had a surprise in Japan for the second quarter
where GDP rose to a 3.9-percent annual rate. Again, [this growth
was] under-pinned by strong investment and exports. Those sorts of
figures were unexpected first for Japan, second for the U.S. At the
time we did our projections, we didn't have data covering third
quarter figures sufficiently for the U.S.

"I think there's a third upward growth surprise in
China. China is 8.5 percent through the first three quarters of
this year.

"The fourth surprise is the high-tech cycles have really
turned sharply upward as of just the last few months. We're
seeing [international] sales of semiconductors with momentum growth
of about 40 percent. Part of the bust that put us into this period
of the slow growth was the downturn in the high-tech sector--the
equity markets, the production layoffs and a slacking demand for
tech intensive goods--and we're seeing that turn around very
sharply.

"In the U.S. particular the last couple of monthly job
reports are encouraging. I think the job outlook although at
100,000 a month isn't sufficient to make significant
in-roads--we've already found a tenth of a point dip in
October--these are all positives moving forward."

Edmund A. Mennis, Independent Investment
Management Consultant
"The outlook for 2004 depends on four intertwined economic and
political issues: 1) The economic recovery in the United States,
which has been consumer-led and fueled by record low-interest rates
and tax incentives. Also, business spending has been sluggish; the
surge in productivity and corporate profits can be attributed
largely to substantial job losses. 2) Iraq, where a quick military
victory has been followed by persistent U.S. casualties, mounting
costs and no clear plan to end the conflict. Other international
problems include India-Pakistan, Israel-Palestine and Korea. 3) The
twin deficits, federal and trade, both of which are financed by
borrowings from individuals, corporations and governments overseas.
4) Presidential elections in 2004, which may result in a
significant shift in both domestic and international
priorities.

"Until such results are more assured, uncertainties will
plague the economy and the financial markets."

Mark Zandi, Chief Economist,
Economy.com Inc.
"We should expect to see a steady improvement in the economy
through 2004, supported by tax cuts, low interest rates and robust
productivity growth. I say that with very little certainty. The key
to that forecast is jobs-we need to see some job growth soon. If we
don't, next year's economy will be less upbeat than what
I'm anticipating.

"All the preconditions for a pickup in jobs are in place
except for one thing: business confidence. Businesspeople seemingly
lack those animal spirits necessary to create jobs. If history is
any guide, they should step up and be more aggressive in the next
couple of quarters.

"Under the most likely scenario, this economy should gain
momentum. We've experienced a period of sluggish growth,
certainly not growth that's sufficient enough to generate jobs,
but growth nonetheless. And I expect we'll see much better
conditions next year with much stronger growth. We're at the
tipping point, and we will see the economy move into a higher
gear."

"I'm more optimistic about 2004. Jobs rose strongly
in October. The Bureau of Labor Statistics revised up its estimates
of job growth in September and August. So it looks like we've
been creating jobs since August. So, the missing economic link was
jobs and I think we've found it. I'm very encourage by the
numbers. I think the job market is clearly headed in the right
direction and I think 2004 is shaping up to be the best year since
Y2K."